By Yap Zhe Wen
Often, we may have heard about the stock market being discussed among the adults, but few take the trouble to expose their children to the financial markets in the world.
We had a good peep into the stock exchanges last weekend, and the first thing I learnt was about the two different types of stocks that the public can participate in the businesses of public listed companies.
The actual definition of stock is a certificate issued to represent ownership of a company, in a very small part. This is a great way to attract the much-needed investments especially if the company is doing well and making money.
There are two types of stocks. The first one is the common stocks, where shareholders have voting rights. They can, therefore, participate in company decisions during the annual general meetings.
The second one is the preferred stocks, where the priority is given to the stockholders to a fixed dividend.
There are a few reasons why companies issue stocks, among others are to acquire assets and expand in ways, such as opening more outlets and to fund the company's research and development activities.
Basically, there are two ways to earn through shares. First, one can earn through dividends when the company declares it. Dividends are part of the company’s profits for the financial year that are shared with the owners.
One can also earn through Capital Gains when the share prices increase. Buying at a low price and selling it high is how the public can earn good money. Unfortunately, this is also the reason for all the speculative buying.
People can also lose lots of money in the stock market if they do not study the companies that they invest in; instead, they follow the market sentiments.
How can share prices increase? When a company has truly grown and made its profit, price per share will naturally increase. This, in return, makes more people want to buy more shares from this company. During the Covid-19 pandemic, share prices of medical and healthcare companies that make the Covid-19 vaccine have shown increase.
However, there are also cases where companies play up market sentiments to cause the value of their shares to rise. This is why, as smart investors, we must carry out checks on the company’s background before investing.
If you want to know the correct way of trading, there are two ways. The first is through broker assistance. Second way is through an investment firm who employs traders to help them buy and sell.
It is never too early to expose oneself to the adult world, and by doing my own research, I have developed a deeper understanding.